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State strips cash from generators

By Rob Hosking

Friday 23rd May 2003

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Governments of both political stripes have pulled more than half a billion dollars out of state-owned electricity companies in the past four years ­ money that could have been used to invest in new generating capacity.

Since the old ECNZ was split, the "baby ECNZs" ­ Meridian Energy, Genesis Energy and Mighty River Power ­ have paid $505.8 million in dividends to the government.

The high-dividend policy was initiated by the last National government. That approach was heavily criticised at the time by the opposition energy spokesman ­ and now Energy Minister ­ Pete Hodgson.

However, once elected in 1999, Labour continued to gouge large dividends out of the SOEs.

Since gaining the Treasury benches, a grand total of $352.4 million has been pulled out of the three companies in dividends.

Yet, when the latest electricity crisis became apparent, both Mr Hodgson and Prime Minister Helen Clark said the problem was that the industry focused too much on the short term and not enough on long-term supply.

When some warning flags about a possible electricity shortage were hoisted as long ago as October, Mr Hodgson described that outlook as "overly pessimistic."

Mr Hodgson this week announced new rules requiring the industry to have a reserve generating capacity on-hand for years when there is an electricity shortage.

The cost of that is estimated at about $190 million ­ and that will probably be passed on to electricity users.

The government's new rules ­ to be enforced by a new Electricity Commission ­ are not aimed at dealing with long-term supply issues but rather at building in some additional capacity for dry years.

The opposition is calling the new proposals ­ which will add roughly $40 to the average annual power bill ­ a tax. The government is calling it an insurance premium.

"The problem we are addressing today is not a shortage of ordinary generation to meet ordinary growth in electricity demand but a specified programme with provision of reserve generation for very dry years," Mr Hodgson said.

There was considerable new generating capacity already scheduled to be built over the next few years, he said.

"More than 500MW in capacity has been commissioned since 1999: about another 700 MW are planned over the next three years."

The Ministry of Economic Development has calculated that, on current demand levels, an additional 150MW of capacity needs to be built every new year.

While business groups have welcomed the government's moves there is a definite feeling the measures should ­ and could ­ have been taken some time ago.

"We made recommendations along these lines Mr Hodgson three years ago but at the time they were rejected," Employers & Manufacturers Association (Northern) chief executive Alasdair Thompson said.

Six weeks ago the association tetchily, and very publicly, pointed out to the minister that four years, which included a lengthy and expensive inquiry should have been enough time for him to come to grips with the issues and make a few decisions.

There has been a feeling that Mr Hodgson has been waiting for some sort of consensus to emerge before the government took any action.

Mr Hodgson seemed to confirm that this week when asked about consultation with the industry.

"I have had years of consultation on this, years!

"And having not had anything resembling agreement on how best to manage it, the government has promoted this idea."

Mr Thompson said the delay in getting any action on electricity supply issues had hurt the economy.

"It's a shame the gestation of this package has taken several years and led to businesses deferring investment and losing production.

"The signal business has taken from the electricity crisis is that the government not really committed to jobs and growth."

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